HC 

106.3 

K12i 


IMMEDIATE  PROBLEMS 

cAn  address  delivered  by 

OTTO  H.  KAHN 
DECEMBER   12,  1922 


The  Farmer 
Capital  and  Labor 
Taxation 
America  and  the 
European  Situation 


PUBLISHED    BY    COMMITTEE    OF 

AMERICAN    BUSINESS    MEN 

354  FOURTH  AVE.,  NEW  YORK 


I  M  M  E  D  I  AT  E 
PROBLEMS 

by 

Otto  H.  Kahn 


AN  ADDRESS 

DECEMBER  12,  1922 


PUBLISHED   BY   COMMITTEE   OF 

AMERICAN    BUSINESS    MEN 
354  Fourth  Ave.,  New  York 


*  . 


o 


HC 


December   12,   1922 


IMMEDIATE  PROBLEMS 

IT  has  been  often  said,  and  it  is  wholly  true, 
that  there  have  been  changes  more  funda- 
mental in  the  mode  of  living  of  the  world 
in  the  last  seventy-five  years  than  in  the  pre- 
ceding two  thousand  years. 

From  the  time  that  the  conception  and  the 
fact  of  space  and  distance  came  to  be  radically 
modified  by  the  railroad,  the  telegraph  and  the 
steamship,  and  that  the  industrial  processes 
and  conditions  became  revolutionized  by  the 
advent  of  the  machine,  things  have  rushed  upon 
humankind  which  have  made  life  fuller  and 
quicker  and  infinitely  more  complex. 

To  the  vast  and  unprecedented  change  from 
^    age-long  habits  and  practices  thus  brought  about 
p    with  almost  unthinkable  rapidity,  the  world  has 
not  yet  adjusted  itself  fully.   Least  of  all,  in  the 
system  and  methods  of  government. 

In  the  midst  of  these  vast  changes,  of  immense 
material  progress,  of  unparalleled  advances  in 
the  field  of  science,  the  system  and  methods  of 
government  have  undergone  relatively  very  little 
modification  from  what  they  were  in  the  pre- 
machine  period. 

I  3  ] 

215      7 


t 


To  the  extent  that  there  have  been  modifica- 
tions, the  question  more  and  more  obtrudes  itself 
whether,  especially  of  late  years,  that  way  has 
been  followed  which  is  best  calculated  to  lead 
to  the  greatest  attainable  degree  of  happiness 
and  well-being  for  all  the  people  and  to  the 
furtherance  of  those  things  which  are  in  truth 
most  worth  while. 

The  problems,  political,  social  and  economic, 
of  the  past  are  not  akin  to  the  problems  of  the 
day.  The  time  when  there  was  reason  to  fear, 
and  to  guard  against,  the  preponderance  or  abuse 
of  kingly  power  has  gone,  probably  never  to 
return.  It  seems  a  fair  question  whether  the 
pendulum  has  not  swung  rather  too  far  in  the 
direction  of  laming  the  effectiveness  of  govern- 
ment by  too  great  a  measure  of  parliamentary 
or  direct  popular  functioning.  Certainly,  the 
world's  need  today  is  less  to  curb  leaders  than  to 
create  and  encourage  leaders  and  accord  them 

scope  for  action. 

•$    <©■     <§> 

Are  the  prevailing  methods  of  government, 
everywhere,  methods  which  would  be  incompati- 
ble with  the  successful  conduct  of  a  business 
concern,  nevertheless  reasonably  adapted  to,  or 
unavoidable  in,  dealing  with  public  problems 
which  now-a-days  are,  and  for  a  long  time  to 
come  are  likely  to  remain,  mainly  economic 
and  social? 

Does  the  existing  system  put  a  premium  on 
glib  talk  and  political  cunning  as  against  plain, 
prompt  and  efficient  action?  Does  it  tend  to  give 

I  4  1 


undue  influence  and  effect  to  vociferously  dog- 
matic and  virulently  aggressive  minorities?  Has 
it  so  enmeshed  us  in  a  web  of  rules,  minute 
details,  red  tape,  log-rolling  and  interferences 
that  inevitably  in  the  affairs  of  government  the 
"native  hue  of  resolution  is  sicklied  o'er"  ? 

More  particularly,  in  this  country  with  its 
huge  size,  its  heterogeneous  population,  and  the 
strongly  diverging  economic  interests  of  different 
sections,  do  and  can  the  methods  of  centralized 
and  all-pervasive  law-making  and  administrating 
from  Washington,  such  as  they  have  developed 
more  and  more  in  recent  years  and  as  they  were 
neither  intended  nor  countenanced  by  the 
makers  of  that  most  admirable  and  inspired  and 
most  justly  revered  of  all  political  instruments, 
the  American  Constitution — do  and  can  these 
methods  yield  results  propitious,  serviceable 
and  satisfactory  to  the  American  people? 

Does  the  outcome  of  the  recent  elections  in  our 
own  country  and  in  England,  and  especially  the 
popularly  acclaimed  advent  of  the  Fascisti  rule 
in  Italy,  betoken  an  intense  dissatisfaction  and 
disillusionment  among  the  people  with  the 
functionings  of  government  and  an  intuitive 
conclusion  that  measures  are  called  for,  making 
for  greater  effectiveness,  simplicity  and  sincerity 
of  government? 

<§>    ^>    ® 

I  merely  register  these  questions.  I  shall  not 
attempt  today  to  answer  them.  To  do  so  would 
be  to  go  much  beyond  the  theme  upon  which  you 
have  asked  me  to  speak. 

(  5  ) 


I  shall  not  seek  to  fathom  fundamental 
causes  and  currents  nor  indulge  in  speculations 
thereon,  but  shall  confine  myself  to  discussing 
concrete  and  immediate  problems  confronting 
us,  namely: 

1.  The  condition  of  the  farmer; 

2.  Capital  and  Labor; 

3.  Taxation ; 

4.  The  European  situation  and 

our  relation  thereto. 


[  6  1 


I 


THE  PROBLEM  OF  THE  FARMER 

Adversity  has  come  upon  the  farmer.  He  is 
gravely  discontented  and  under  a  sense  of  griev- 
ance toward  the  existing  order  of  things. 

His  is  a  toilsome  calling,  involving  inevitable 
hardships  and  deprivations,  and  usually  a  poorly 
requited  one,  indeed  one  of  the  least  adequately 
remunerated  among  those  which  make  up  the 
sum  total  of  the  nation's  activities. 

The  farming  business  is  the  largest  in  the 
country.  The  basic  and  vital  necessity  of  the 
farming  industry  needs  no  emphasis.  The 
immense  social  value  of  the  farming  class  to  the 
State  is  beyond  argument. 

The  farming  stock  provides  a  continuous  and 
essential  supply  of  human  raw  material  toward 
the  preservation  of  the  vigor  and  distinctive 
characteristics  of  the  American  race. 

<§>     <§>     <§> 

The  farmer  finds  himself  in  an  intolerable 
situation. 

Pre-war  Income, 
Post-war  Outgo 

With  wages  continuing  on  a  high  level,  and 
in  some  cases  wholly  undeflated  from  the  peak 

1  7  1 


reached  during  war  conditions,  with  the  supply 
of  labor  greatly  restricted  through  the  operations 
of  the  Immigration  Act,  with  taxes  increased, 
with  the  cost  of  everything  he  buys  much  above 
the  level  of  pre-war  days,  the  farmer  faces  the 
fact  that  the  dollar  price  of  that  which  he  pro- 
duces and  sells  is  no  higher  than  it  was  before 
the  war  and  that  the  dollars  which  he  receives  in 
return  for  his  toil  have  a  greatly  diminished 
purchasing  power  as  compared  to  what  it  was 
formerly. 

It  is  harmful  and  menacing  to  the  common- 
wealth that  so  numerous  and  so  valuable  a  por- 
tion of  the  population  should  feel  discontented 
and  resentful  and  be  without  prosperity.  It 
must  be  recognized  that  the  situation  lends  itself 
peculiarly  to  the  incitements  and  wiles  of  the 
demagogue  and  to  the  plausible  figments  of  the 
economic  visionary  or  humbug. 

The  Danger  of 
False  Remedies 

Unless  reasonable  and  well-considered  mea- 
sures of  alleviation  are  promptly  enacted  and 
such  policies  put  into  operation  as  are  effective 
and  economically  sound,  the  danger  looms  ahead 
that  a  large  portion  of  the  farming  vote  may  suc- 
cumb to  the  specious  persuasiveness  and  the  false 
promises  of  those  offering  relief  through  unsound 
money  and  similar,  often  disproved  but  ever 
resurging,  shams,  delusions  and  heresies. 

Indeed,  that  danger  is  upon  us.  Once  more, 
as  in  the  days  of  populism,  the  raucous  voices 

1  8  1 


of  the  fomenters  of  class  and  sectional  ani- 
mosity, of  the  promoters  of  economic,  social  and 
political  quackeries,  and  of  the  vendors  of 
tickets  to  Utopia,  pervade  the  land  and  are 
finding  all  too  many  listeners. 

The  farmer's  just  grievances  call  for  imme- 
diate, intelligent  consideration  and  effective 
redress. 

If  there  is  one  calling  which  has  a  higher  claim 
than  another  upon  the  helpful  consideration  of 
the  State,  it  is  that  of  the  farmer. 

The  farmer's  problem  is  part  of  our  problem. 
The  farmer's  welfare  is  an  essential  part  of  our 
welfare. 

There  can  be  no  lasting  prosperity  in  trade  and 
industry,  unless  the  farmer  is  reasonably  pros- 
perous. There  can  be  no  stable  and  propitious 
conditions  in  the  field  of  politics  as  long  as  the 
farmer  harbors  the  resentful  feeling  that  he  is 
not  accorded  a  square  deal. 

The  remedy  can  and  must  be  found.  More 
adequate  financial  facilities  for  the  farmer,  a 
better  and  more  economical  system  of  distribu- 
tion, co-operative  buying  and  marketing,  satis- 
factory arrangements  in  the  matter  of  storage 
and  grading,  a  national  policy  which  will  tend  to 
broaden  the  market  for  our  products  of  the  soil, 
and  other  economically  well-grounded  measures 
of  a  helpful  character,  though  divergent  from 
conventional  practices,  can  and  should  be 
realized. 

t  9  ] 


But  that  realization  will  be  greatly  retarded, 
if  not  at  least  partially  prevented,  if  the  problem 
is  not  tackled  with  a  common  effort  of  good-will 
and  mutual  understanding. 

For  business  to  rail  at  the  "Farm  Bloc"  and  to 
obstruct  soundly  conceived  measures  of  legisla- 
tion desired  by  spokesmen  for  the  farming  in- 
terests, and,  on  the  other  hand,  for  the  farming 
communities  to  follow  the  lead  of  men  who 
would  angrily  strike  at  business  and  ignore,  or 
run  counter  to,  economic  law  and  experience,  is 
not  the  way  to  attain  useful  results. 

Solution  Through  Consultation 
and  Reciprocal  Collaboration 

The  way  is  to  sit  down  together  and  by  calm 
and  well-meaning  comparison  of  views  diagnose 
the  case,  determine  the  causation  of  the  trouble 
and  act  in  unison  in  finding  and  applying  anti- 
dotes for  the  present  and  preventative  measures 
for  the  future. 

Both  the  problem  of  the  farmer  and  that  of 
labor  involve  a  careful  and  authoritative  investi- 
gation of  the  question  whether  and  to  what 
extent  waste  has  crept  into  the  processes  of  dis- 
tribution, whether  and  to  what  extent  unneces- 
sary tolls  are  levied  and  the  channels  leading 
from  the  producer  to  the  consumer  are  clogged 
by  parasitic  and  obnoxious  growths  which 
ought  to  be  removed. 

Statistics  over  many  years  have  demonstrated 
strikingly     that     agricultural     prosperity     and 

[  10  ] 


business  prosperity,  and  agricultural  depression 
and  business  depression,  run  on  parallel  lines 
and  are  largely  interdependent. 

Unfortunately,  that  truth  has  not  been 
sufficiently  recognized  as  yet  by  either  party. 
On  the  contrary,  they  have  usually  been  at 
loggerheads  and  pulling  in  divergent  directions, 
when,  as  a  matter  of  fact,  they  are  natural  allies 
and  both  have  much  to  gain  from  sympathetic 
understanding  and  co-operation. 


I  11  1 


II 


THE  PROBLEM  OF  CAPITAL 
AND  LABOR 

If  there  is  one  country  which  ought  to  be  free 
from  class  animosity  and  conflict,  it  is  the 
United  States. 

There  is  no  class  demarcation  in  this  country. 
The  workman  of  today  is  the  employer  of 
tomorrow.  Most  of  our  rich  men  and  all  of  our 
richest  men  started  at  the  bottom  of  the  ladder. 

The  great  majority  of  the  presidents  of  our 
railroads  and  of  our  leading  industrial  concerns 
rose  from  the  ranks. 

Yet,  the  gulf  between  employer  and  employee 
remains  far  from  bridged,  and  conflicts  are  far 
too  frequent. 

^>    <§>     •§> 

It  would  be  idle  to  look  for  a  universal  remedy 
to  cure  this  state  of  things.  Much  can  be  done 
by  the  pressure  of  public  opinion  directed  equally 
upon  the  "hardboiled"  employer  and  the  tru- 
culently class-selfish  labor  leader. 

The  average  American  workingman  is  of  no 
different  human  stuff  than  the  rest  of  us.  His  are 
the  same  joys  and  sorrows,  and  the  same  funda- 
mental morality.  He  is  responsive  to  the  same 
appeal. 

[   12  1 


He  is  subject,  however,  to  a  ceaseless  and 
highly  organized  propaganda  calculated  at  best 
to  confirm  and  strengthen  him  in  the  feeling  of 
class  consciousness,  but  all  too  often  aiming  by 
insidious  misrepresentation  and  plausible  falla- 
cies to  poison  his  mind  and  lead  him  astray. 

The  way  to  meet  this  pernicious  propaganda 
is  for  employers,  individually  and  collectively,  to 
take  the  pains  of  counteracting  it,  both  in  word 
and  deed. 

That  means  not  only  patient  and  persistent 
work  in  explaining  and  elucidating,  and  in 
attacking  social  and  economic  heresies  with  the 
weapon  of  logic  and  of  tested  truth,  it  means 
likewise  the  exemplification  in  fact  of  fair  and 
liberal  dealing. 

Capital  Should  be  Guided 
by  the  Golden  Rule 

It  means  recognizing  the  human  qualities  of 
the  worker;  it  means  respecting  his  dignity;  it 
means  paying  due  heed  to  his  legitimate  require- 
ments and  making  fair  allowance  even  for  his 
traditional  and  natural  prejudices;  it  means 
stimulating  his  interest,  giving  him  incentive, 
granting  him  his  due  say  as  to  the  conditions 
under  which  he  works;  it  means  fairly  meeting 
the  problems  of  sickness,  unemployment  and 
old  age.  It  means,  in  one  word,  putting  the 
human  equation  and  the  element  of  the  golden 
rule  into  the  relationship  between  employer  and 
employee. 

[  13  ] 


It  also  means  recognition  of  the  fact  that  it  is 
in  the  best  interest  of  the  employer,  even  from 
the  merely  selfish  point  of  view,  not  to  pay  the 
lowest  wages  to  which  labor  can  be  squeezed 
down,  but  rather  the  highest  wages  compatible 
with  the  successful  conduct  of  his  business  and 
with  keeping  his  product  at  reasonable  cost. 

<§>     <§>     <§> 

Labor  is  entitled  as  a  matter  of  course,  to 
receive  its  fair  share  in  the  fruits  of  industry,  not 
merely  by  way  of  an  adequate  return  in  wages, 
but  of  an  adequate  return  also  in  the  comforts, 
interests  and  recreations  of  life,  in  those  less 
tangible  things  which  make  for  contentment, 
peace  of  mind  and  happiness. 

On  the  other  hand,  the  workingman  must 
realize  that  high  wages  can  only  be  maintained 
if  a  high  rate  of  production  is  maintained.  The 
restriction  of  production  to  a  uniformly  low 
level  per  man,  with  a  view  to  creating  positions 
for  more  men,  is  a  sinister  and  harmful  fallacy, 
most  of  all  in  its  effect  on  labor. 

Even  the  official  organ  of  the  Bolshevist 
regime  in  Russia  announced  recently  that 
"increased  production  is  not  only  the  imperative 
duty  but  the  imperative  interest  of  the  prole- 
tariat." 

Restrictive  Rules 
Hurt  Everybody 

By  the  same  token,  the  restriction,  under 
labor  union  rules,  of  the  number  of  apprentices 

I  14  1 


in  given  trades,  and  all  similar  measures  of  inter- 
ference with  the  natural  course  of  things,  defeat 
their  own  objects  and  are  detrimental  both  to 
labor  and  to  the  community  at  large. 

It  is  a  truism  to  say  that  the  more  is  produced 
in  a  community,  the  more  there  is  to  divide  all 
round.  Show  me  a  country  of  low  production, 
and  you  have  a  country  of  low  wages.  Inevitably 
so.  No  labor  union  or  other  power  can  change 
that  economic  fiat. 

Nor  can  they  change  the  fact  that  there  is  a 
point  beyond  which  wages  cannot  rise  without 
throwing  production  out  of  gear  and  disturbing 
the  whole  economic  equilibrium. 

Unduly  inflated  wages  must  necessarily  create 
unduly  inflated  prices.  The  result  is  diminished 
consumption  which,  after  awhile,  becomes 
reflected  in  a  reduction  of  output,  accompanied 
by  a  reduction  of  employment. 

Moreover,  exorbitantly  boosted  wages  do  not 
do  the  worker  much  good  when  offset  by  a  more 
or  less  proportionately  high  level  of  the  cost  of 
the  things  he  buys.  And  they  do  a  great  deal  of 
harm  to  a  very  large  part  of  the  rest  of  the 
community. 

The  Welfare  of  the  Whole 
People 

The  welfare  of  the  so-called  middle  classes, 
the  men  and  women  of  moderate  incomes  or 
salaries,  the  small  shopkeeper,  the  average  pro- 
fessional man,  the  farmer,  etc.,  is  no  less  im- 

[  15  ] 


portant  to  the  State  than  the  welfare  of  the 


wage-earner. 


If,  through  undue  exactions,  through  unfair 
use  of  his  collective  power,  through  inadequate 
output,  the  workman  brings  about  a  condition 
in  which  the  maladjustment  of  returns  and  the 
pressure  of  high  prices  become  intolerable  to  the 
many  millions  who  are  not  wage  earners,  he  will 
create  a  widespread  animosity  against  himself 
which  is  bound  in  the  end  to  be  of  great  harm  to 
his  legitimate  aspirations.  Precisely  the  same, 
of  course,  holds  true  in  respect  of  the  employer 
and  capitalist. 

<§>     <§>    <§> 

In  the  last  analysis,  these  matters  come  down 
to  the  temperate,  sensible  and  foresighted  use, 
or  the  misuse,  of  power  temporarily  residing,  to  a 
greater  or  lesser  degree,  with  one  party  or  the 
other,  with  organized  labor  or  with  the  em- 
ployer, according  to  the  greater  or  lesser  demand 
for  workers. 

The  Public  Disinclined 

to  Tolerate  Avoidable  Conflicts 

Both  sides  will  do  well  to  take  heed  of  the 
patent  fact  that  the  community  at  large  is  less 
than  ever  inclined  to  tolerate  quarrels,  at  its 
discomfort,  expense  and  peril,  arising  from  the 
misuse  or  the  unintelligent  use  of  power  by  one 
party  or  the  other  or  by  both. 

If  necessary,  means  will  be  found  to  curb,  cur- 
tail and  circumscribe  the  exercise  of  that  power, 

[   16  ] 


regrettable  though  it  would  be  if  in  one  more 
great  field,  legislative  or  bureau  regulation  and 
governmental  interference  were  to  be  substi- 
tuted for  the  action  of  natural  forces. 

But  it  is  plainly  manifest  that  the  community 
will  not  again  stand  idly  by  and  subject  itself 
to  the  losses,  penalties  and  risks  of  great  strikes 
such  as  the  recent  railroad  or  coal  strikes. 


17  ] 


Ill 


THE  PROBLEM  OF  NATIONAL 
TAXATION 

It  would  be  difficult  to  conceive  of  a  system 
of  taxation  less  scientific  and  balanced,  more 
crude  and  disserviceable  than  the  one  that  has 
been  in  effect  in  this  country  since  1917. 

While  business  and  accumulated  capital  are 
naturally  the  principal  single  sources  of  revenue, 
there  is  a  point  beyond  which  these  sources  can- 
not be  used  wisely,  safely  or  effectively. 

To  supplement  them,  numerous  other  means 
of  providing  revenue  are  available.  The  framers 
of  our  tax  legislation  have  resorted  to  them  only 
unwillingly  and  inadequately,  although  they 
are  being  greatly  and  successfully  used  in  all 
other  countries. 

Taxes  of  that  nature,  while  largely  productive 
in  the  aggregate,  are  so  trifling  in  their  units  as 
to  be  barely  perceptible  in  effect,  and  they  have 
the  great  advantage  of  collecting  themselves  al- 
most automatically,  whereas  the  expense,  labor 
and  complexities,  both  to  the  Government  and 
the  taxpayer,  which  the  collection  of  the  income 
taxes  involves  under  the  provisions  of  the  exist- 
ing law,  are  of  staggering  magnitude. 

I  18  ] 


Progressive  Income  Taxation  Right, 
but  Existing  Method  Unreasonable 

I  favor,  and  have  always  favored,  the  principle 
of  a  progressive  income  tax,  but,  like  every 
other  principle,  however  sound,  it  must  be  ap- 
plied within  the  rule  of  reason  and  with  that 
discrimination  which  takes  account  of  practical 
considerations  and  consequences. 

We  have  applied  that  principle  with  vindictive 
unreason.  We  have  turned  a  rightful  theory  into 
a  measure  of  economic  violence,  with  ill  effects 
that,  however  indirect  in  some  of  their  mani- 
festations, are  all-pervasive  upon  the  nation. 

<§>    <§>    <§> 

Much  the  largest  part  of  the  nation's  liquid 
capital  is  owned  by  those  of  small  and  moderate 
means,  either  in  the  shape  of  direct  investments 
or  through  deposits  in  savings  banks  or  with  life 
insurance  and  kindred  institutions.  But  the 
funds  so  held  are  not,  generally  speaking,  and 
ought  not  to  be,  available  for  starting  and 
financing  new  and  untried  enterprises. 

The  man  of  small  means  ought  not,  and  as  a 
general  rule  will  not,  and  savings  banks  and  life 
insurance  concerns  do  not,  and  indeed  under  the 
law  must  not,  place  funds  otherwise  than  in 
seasoned  investments. 

Reserve  of  Capital 
Needed  for  New  Enterprise 

The  capital  which  can  afford  to  take,  has  an 
incentive  to  take,  ought  to  take  and  heretofore 

[  19  ] 


has  taken,  the  risk  of  starting  and  financing  new 
enterprise  and  doing  the  pioneer  work  of  the 
country,  is  that  relatively  small  percentage  of 
the  nation's  total  capital  which  is  represented  by 
the  available  funds  of  corporations  and  of  well- 
to-do  individuals. 

That  is  a  most  valuable  function  for  the 
nation,  and  that  function  has  been  woefully 
crippled  by  the  existing  surtaxes,  both  because 
they  have  prevented  the  accumulation  of  capital 
and  because  they  have  largely  impaired  the 
incentive  to  venturing  and  risk-taking. 

Effects  of  Present  System 
of  Supertaxes 

A  register  of  the  characteristics  of  our  present 
schedule  and  system  of  supertaxes  would  include 
these  items: 

1.  It  bears  the  imprint  of  class  and 
sectional  discrimination. 

2.  It  is  unscientific,  inequitable,  vexa- 
tious, and  uncertain  in  its  operation,  and 
getting  steadily  less  effective  in  producing 
revenue. 

3.  It  encourages  and  facilitates  govern- 
mental extravagance  and  at  the  same  time 
diminishes  the  incentive  to  the  careful 
husbanding  of  private  resources,  thus  dis- 
couraging saving  and  self-denial  and  pro- 
moting private  extravagance. 

[  20  1 


4.  By  appropriating  and  draining  into 
the  coffers  of  the  government  a  preponder- 
ant share  of  the  liquid  capital  which  ought 
to  be  available  for  business  and  investment, 
it  hampers  enterprise,  deflects  the  natural 
and  fructifying  flow  of  capital  and  prevents 
that  degree  of  accumulation  of  funds  which 
is  needed  for  the  normal  conduct  and  due 
expansion  of  the  nation's  business  and  for 
the  country's  development. 

5.  It  causes  economic  dislocation  and 
maladjustment,  diminishes  the  country's 
purchasing  and  consuming  power,  tends  to 
curtail  production,  and  makes  for  higher 
costs. 

6.  In  that  it  penalizes  the  working 
capitalist,  the  man  engaged  in  active  busi- 
ness and  in  productive  enterprise,  as 
against  the  idle  capitalist,  who  simply  puts 
his  funds  into  tax-exempt  securities,  it  pre- 
vents many  business  transactions  alto- 
gether, and  causes  others  to  be  done  in  a 
roundabout  and  artificial  manner. 

7.  By  curtailing  excessively  that  incen- 
tive to  effort  and  venturing,  which  relates 
to  the  expectation  of  material  reward,  it 
strikes  at  the  very  basis  of  the  system  of 
individual  enterprise  and  initiative,  upon 
which  our  social,  economic  and  political 
system  rests. 

I  21  ] 


Prosperity  a  Matter  of 
Delicate  Interrelationships 

The  country's  prosperity  is  a  matter  of  mani- 
fold, complex  and  delicate  interrelationships, 
and  he  who  would  lead  the  people  to  believe  that 
they  can  be  benefitted — or,  indeed,  that  they  can 
avoid  being  greatly  harmed — by  oppressive  taxa- 
tion of  capital,  deceives  himself  or  attempts  to 
deceive  others. 

Prior  to  the  war,  the  annual  expenditure  of 
the  Federal  Government  was  approximately  one 
billion  dollars.  It  is  now  about  three  and  a 
quarter  billion  dollars,  and  even  with  strict 
governmental  economy  can  probably  not  be 
reduced  materially  below  that  sum  for  a  number 
of  years  to  come. 

That  is  a  vast  increase,  yet  the  burden  is  not 
really  a  heavy  one  in  proportion  to  the  nation's 
wealth  and  resources,  and  could  be  borne  with 
relative  ease  if  it  were  wisely  adjusted.  As  a 
matter  of  fact,  it  is  grossly  maladjusted. 

The  whole  theory,  never,  prior  to  the  war, 
tried  in  practice  or  countenanced  by  public 
opinion,  of  levying  huge  toll  on  the  usufruct 
of  capital  and  the  material  reward  of  energy, 
ability  and  enterprise,  is  not  workable. 

Taxes  Inevitably 
Percolate  Downward 

The  conception  of  piling  enormous  taxes  on 
the  top  in  the  expectation  that  they  will  not 
percolate  downward,  is  fallacious. 

[  22  1 


For  many  years  prior  to  the  war,  America's 
material  development  proceeded  by  leaps  and 
bounds,  and  its  people  prospered  under  a  scheme 
of  taxation  which  sat  so  lightly  on  everybody 
that  the  subject  of  taxation  was  one  of  but  slight 
general  concern. 

If  it  has  now  become  one  of  our  major  prob- 
lems, a  matter  of  universal  complaint,  unceas- 
ing discussion  and  grievous  burdensomeness,  the 
reason  is  to  be  found  far  less  in  the  increased 
revenue  requirements  arising  from  the  war  than 
in  the  stubborn  adherence  since  1917  to  a  faulty 
system  and  ill-judged  methods  of  taxation. 

How  the  Present 
Income  Tax  is  Paid 

According  to  the  latest  published  official  com- 
pilation of  "Statistics  of  Income,"  the  yield  from 
personal  returns  for  the  year  1920  was  in  round 
figures,  $1,075,000,000.  The  total  number  of 
persons  in  this  country  "employed  in  gainful 
occupations"  is  stated  to  be  over  41,000,000. 
The  total  number  of  persons  filing  income  tax 
returns  was  7,259,944.  That  is  either  too  many 
or  too  few. 

Individuals  to  the  number  of  5,241,266  having 
annual  incomes  from  $1,000  to  $3,000  paid  alto- 
gether $82,367,553  in  income  taxes,  being  at 
the  average  rate  of  less  than  1  per  cent  of  their 
incomes. 

Individuals  to  the  number  of  1,337,116  having 
annual  incomes  from  $3,000  to  $5,000  paid  alto- 

l  23  ] 


gether  $83,496,116  in  income  taxes,  being  at  the 
average  rate  of  1.66  per  cent  of  their  incomes. 

In  other  words,  6,578,382  income  tax  payers 
(i.  e.,  over  90  per  cent  of  the  total  number  of  tax 
paying  individuals)  contributed  about  15J^ 
per  cent  to  the  total  governmental  revenue  from 
income  taxation,  while  the  remaining  843^  per 
cent  was  contributed  by  681,562  income  tax 
payers  (i.  e.,  barely  10  per  cent  of  the  total 
number  of  tax  paying  individuals). 

How  the  Returns  from 
Surtaxes  are  Decreasing 

By  reason  of  their  very  extremes,  the  high 
surtax  rates  have  defeated  their  own  purpose,  or, 
rather,  that  of  their  advocates.  The  country  is 
afflicted  with  the  troublous  consequences  flow- 
ing from  the  operations  of  the  existing  tax- 
schedule,  without  even  gaining  the  advantage  of 
the  revenue  which  was  supposed  to  result  from  it. 
The  higher  brackets  of  the  surtax  schedule  have 
ceased  more  and  more  to  be  productive.  To  a 
considerable  degree  they  have  abolished  them- 
selves, but  in  the  wrong  way. 

The  official  figures  show  that  the  aggregate 
income  subject  to  the  higher  surtaxes  has  been 
reduced  to  less  than  one-half  of  what  it  was 
in  the  first  year  of  their  existence,  and  the  aggre- 
gate of  taxable  incomes  exceeding  $300,000  has 
been  reduced  to  less  than  one-quarter  of  what 
was  the  aggregate  declared  income  in  that 
category  in  1916. 

That   does   not   mean   that   large   individual 

I  24  1 


incomes  have  diminished.  It  merely  means  that 
the  governmental  revenue  derived  from  the 
extreme  surtax  rates  on  large  incomes  has 
diminished. 

Quite  apart  from  the  plain  way  of  avoidance, 
through  investment  in  tax-exempt  securities, 
these  rates  challenge  the  ingenuity  of  those 
subjected  to  them,  as  every  extreme  statute  does, 
to  find  permissible  means  of  escape  from  their 
rigor. 

Governmental  greed,  just  like  private  greed, 
is  apt  to  overreach  itself.  Many  transactions  on 
which  those  concerned  would  willingly  pay  a 
moderate  tax  are  now  simply  being  laid  aside  and 
not  effected  at  all  because  of  the  intolerable 
taxation  to  which  they  would  be  subjected. 
Others  are  being  concluded  in  an  artificial, 
round-about,  unsatisfactory  way  so  as  to  avoid 
the  full  burden  of  the  tax.  The  result  in  either 
case  is  a  loss  of  revenue  to  the  Government  and 
an  impediment  to  business. 

I  have  personally  no  doubt  that  surtaxes  im- 
posed at  a  reasonable  rate  would  produce  a 
larger  revenue  than  do  the  excessive  rates  now 
in  existence.  As  the  rate  of  surtaxes  is  lowered, 
the  aggregate  amount  of  income  subjecting  itself 
to  taxation  will  be  largely  increased.  A  decrease 
in  rates  will  bring  an  increase  in  volume. 

A  Few  Pertinent 
Questions 

I  should  like  to  address  the  following  few  ques- 
tions to  those  who,  untaught  by  the  test  of  the 

(  25  ] 


past  four  years,  still  cling  to  the  ill-conceived 
and  nationally  detrimental  system  of  taxation 
which  was  inaugurated  in  the  stress,  and  to  meet 
the  exigencies,  of  war  and  is  no  more  fitted  to  be 
perpetuated  in  peace  than  is  any  other  war 
measure: 

Has  any  one,  any  calling,  or  any  section  of 
the  country  been  benefitted  by  a  system  which 
was  meant  by  its  promoters  to  place  the  prin- 
cipal burden  of  taxation  directly  upon  a  small 
minority  of  the  people? 

Has  not,  on  the  contrary,  that  burden,  trans- 
lated into  higher  costs,  diminished  supply  of 
capital,  reduced  enterprise,  curtailed  purchasing 
and  consuming  power,  freakish  maladjustments 
and  other  impediments,  fallen  heavily  upon  the 
bulk  of  the  people,  especially  upon  the  agri- 
cultural population,  much  more  heavily  indeed 
than  would  have  been  the  case  under  a  system 
less  based  upon  class  discrimination  and  political 
opportunism,  and  more  upon  courageous  applica- 
tion of  practical  knowledge  and  economic 
soundness? 

Is  it  not  a  fact  that  the  problem  of  raising 
in  times  of  peace  so  large  a  sum  as  three  and  a 
half  billion  dollars  by  taxation,  is  an  entirely  new 
one  to  us  and  that  we  have  no  precedent  to  guide 
us  in  its  solution?  If  so,  is  it  reasonable  to  think 
that  we  have  found  the  best  solution  right  off,  at 
the  first  attempt,  in  the  revenue  measure  enacted 
in  the  midst  of  war,  and  is  it  reasonable  to  ad- 
here in  peace  times,  as  we  have  done,  generallv 

f  26  ] 


speaking,   to  the  economic  conceptions  under- 
lying that  measure? 

Ought  we  not,  rather,  while  retaining  the 
principle  of  progressive  income  taxation,  to  do 
some  prudent,  carefully  circumscribed  and 
responsibly  sponsored  experimenting  in  order  to 
ascertain  through  the  test  of  actual  experience 
what  is  the  best  and  most  advantageous  and  least 
burdensome  way  all  round  to  raise  the  revenue 
necessary  for  the  conduct  of   the  Government? 

Plea  not  for  Benefit  of  Wealth, 
but  for  Advantages  of  All 

I  realize  that  not  much  sympathy  will  be 
wasted  by  the  rank  and  file  upon  the  plaint  of 
those  in  possession  of  large  incomes,  on  the  score 
of  excessive  taxation. 

If  the  argument  for  a  reduction  of  those  rates  is 
to  succeed,  it  must  be  based  not  upon  the  plea 
of  consideration  for  the  rich,  but  upon  proof 
that  the  existing  schedule  results  in  harm  to  the 
country  as  a  whole. 

That  proof  has  been  given  repeatedly.  As 
far  as  I  know,  it  has  never  been  contested  by 
serious  arguments.  A  Democratic  President  and 
a  Republican  President,  three  Democratic  and 
one  Republican  Secretaries  of  the  Treasury  have 
advocated  an  adequate  reduction  of  our  sur- 
taxes and  have  given  reasons  for  that  recommen- 
dation. 

I  27  1 


Yet  the  evil  of  extreme  surtaxes  and  the 
countrywide  damage  flowing  from  it  remain 
uncorrected,  for  the  slight  modification  effected 
last  year  is  no  correction. 

How  Existing  Laws 
Came  Into  Being 

It  is  interesting  to  note  in  this  connection,  that 
the  high  surtax  rates  embodied  in  our  revenue 
measures  since  1917  do  not  represent  the  advice 
and  judgment  of  the  responsible  leaders  of  either 
of  the  great  political  parties,  nor  the  vote  of  the 
House  of  Representatives  as  enacted  in  the  bills 
sent  by  the  House  to  the  Senate,  nor  even  the 
judgment  of  the  Senate  Committee  specially 
charged  with  the  function  of  studying  and  recom- 
mending measures  of  revenue-raising. 

In  1917  the  recommendations  of  the  Com- 
mittee in  charge  were  set  aside  by  the  assault 
of  a  group  of  Senators  on  the  floor  of  the  Senate 
who  stampeded  their  colleagues  into  voting  for 
much  higher  surtaxes  than  had  resulted  from  the 
deliberations  in  the  calmer  and  more  responsible 
discussions  of  the  Committee  room. 

In  1921  the  House  of  Representatives  voted 
to  reduce  the  highest  surtaxes  to  thirty-two 
per  cent  and  the  Senate  Committee  adopted 
the  same  rate,  only  to  reverse  itself  at  the  bidding 
of  a  group  of  Senators  who  successfully  insisted 
upon  far  higher  rates  of  surtaxes  than  had  been 
fixed  by  the  vote  of  the  House  and  by  the  original 
vote  of  the  Senate  Committee. 

I  28  ] 


It  is  true  that  the  proposed  reduction  of  the 
maximum  surtax  rate  to  thirty-two  per  cent 
would  have  affected  only  those  in  receipt  of 
annual  incomes  orprofits  exceeding$70,000.  From 
that  point  of  view,  the  proposal,  whatever  its 
economic  and  fiscal  justification,  was  maladroit 
and  inexpedient  practically,  and,  in  my  personal 
opinion,  lacking  in  due  consideration  for  the 
smaller  income  tax-payer.  Coinciding,  moreover, 
as  it  did,  with  the  abolishment  of  the  excess 
profits  tax,  it  lent  itself  easily  to  attack. 

Spread  between  Normal  and 
Surtaxes  in  America  Higher 
than  in  Europe 

From  the  point  of  view  of  the  strictly  intrinsic 
justification  for  the  proposed  reduction,  it  may 
be  pointed  out  that  the  spread  between  the  rate 
applicable  to  the  income  class  at  which  our 
"normal"  tax  of  eight  per  cent  starts,  i.  e.,  $4000, 
and  the  rates  applicable  to  those  in  the  high 
surtax  classes,  is  far  greater  under  the  American 
tax  schedule  than  it  is  in  any  country  of  Europe. 
The  exemptions  granted  under  the  American 
Income  Tax  enactment  in  favor  of  those  of  small 
means,  are  much  more  liberal  than  those  prevail- 
ing in  any  European  country. 

Nevertheless,  it  is  questionable  whether  public 
opinion  and  political  considerations  would  and 
should  countenance  a  really  adequate  reduction 
of  the  surtax  rates  unless  there  was  a  simultane- 
ous reduction  in  the  "normal"  rate. 

[  29  ] 


Normal  Tax  Rate  Should  be  Reduced 
Simultaneously  with  Surtaxes 

I  would  suggest,  therefore,  (irrespective  of 
what  might  be  done  in  case  of  the  adoption  of  the 
"sales  tax,"  to  which  I  shall  refer  later  on),  that 
the  "normal"  tax-rate  be  reduced  by  one- 
quarter  and  that  all  surtaxes  be  reduced  by 
one-third  for  the  next  fiscal  year  and  by  another 
one-sixth  for  the  year  after  that. 

While  such  a  reduction  would  have  a  strongly 
beneficial  effect  in  quickening  business,  facilitat- 
ing the  flow  of  capital  and  diminishing  costs,  it 
would  be  found,  I  believe,  that  the  total  revenue 
resulting  from  the  lowered  rates  as  compared  to 
those  now  in  force  need  be  affected  to  a  relatively 
unimportant  extent  only,  and  as  far  as  the  tax 
yield  from  large  incomes  and  profits  is  concerned, 
I  feel  certain  that  the  government  would  receive 
more,  rather  than  less. 

The  latter  expectation  is  borne  out  by  the  high 
authority  of  the  Secretary  of  the  Treasury  in  his 
latest  report  on  the  national  finances,  an  ad- 
mirably wise,  sound  and  candid  utterance.  The 
only  point  concerning  which  I  venture  to  express 
qualified  dissent  from  the  tax  policy  recom- 
mended by  the  Secretary  is,  that  his  advocacy 
of  a  reduction  in  the  upper  brackets  of  the  surtax 
rates  is  not  coupled  with  a  proposal  for  the 
simultaneous  relief  of  the  income  tax  payer  of 
lesser  means. 


[  30  ] 


Alternative  Taxes  Available 
if  Afore  Revenue  Needed 

To  the  extent  that  a  falling  off  in  the  aggre- 
gate revenue  from  income  and  surtaxes  is  to  be 
made  good  in  consequence  of  the  general  reduc- 
tion which  I  suggest,  there  is  a  choice  available 
among  several  very  simple  and  productive 
taxes  (such  as  have  long  existed  in  most  countries 
of  Europe) ,  for  instance,  a  very  small  stamp  tax 
on  checks  and  on  bills  of  exchange,  which  would 
involve  no  burden  at  all  on  the  people  at  large 
and  no  hardship  on  anybody. 

#>     <§>     <§• 

Suggestion  of  Sales  Tax  Should 
Receive  Unbiased  Consideration 

In  this  connection  and  from  the  broader  view- 
point of  fiscal  policy,  I  would  once  more  bespeak 
unbiased  consideration  of  the  sales  tax.  It  seems 
to  me  that  the  objections  to  that  form  of  taxa- 
tion are  largely  based  upon  preconceived  notions 
or  dogmatic  assumptions.  Whether  its  advocates 
or  its  opponents  are  in  the  right  can  only  be 
determined  by  actual  test.  I  think  such  a  test 
ought  to  be  made,  simultaneously  with  an 
adequate  reduction  of  the  surtax-schedule  and 
the  normal  tax-rate,  and  a  fair  trial  given  to  the 
principle  of  a  sales  tax  on  however  modest  a  scale. 

Such  votes  as  have  been  taken  on  the  subject 
among  business  men  throughout  the  country, 
demonstrate  that  the  majority  of  the  business 
community  endorses  the  principle  of  a  sales  tax. 

1  31  ] 


It  has  been  advocated  by  leading  men  in  both 
political  parties  and  by  leading  newspapers  of 
divergent  political  affiliations. 

The  sales  tax  is  so  simple  of  application  and 
collection,  so  exceedingly  small  in  its  individual 
incidence,  and  so  easily  recalled  if  no  longer 
wanted,  that  a  trial  upon  intelligently  conceived 
and  carefully  worked  out  lines  may  safely  be 
undertaken  without  the  risk  of  noticeable  hard- 
ships upon  any  one. 

The  labor,  trouble  and  time  spent  by  the 
6,578,382  small  income  tax  payers  in  filing 
their  returns  and  paying  their  taxes,  and  the 
expense  caused  to  the  government  in  collecting 
and  checking  them,  are  out  of  all  proportion 
to  the  revenue  produced. 

If  a  sales  tax  were  adopted,  the  yield  produced 
by  it  would  make  it  easily  possible  for  the  govern- 
ment to  exempt  entirely  from  income  taxation 
all  those  having  incomes  of  $5,000  or  less,  in 
addition  to  diminishing  the  normal  tax  and  to 
reducing  the  war  schedule  of  surtaxes  to  reason- 
able rates,  appropriate  to  peace  time  conditions. 
And  there  would  still  be  left,  assuming  a  sales 
tax  of  one  per  cent,  a  large  surplus  yield  to  be 
applied  to  relief  from  burdensome  taxation  or  to 
other  desirable  purposes. 

No  Complex  Machinery 
Would  be  Required 

Such  practical  objections  as  have  been 
brought  forward  by  fair  critics  of  the  sales  tax, 
can    be    met    without    difficulty    by    suitable 

[  32  ] 


provisions  of  the  enactment.  No  complex  and 
cumbersome  machinery  is  required  to  bring  the 
sales  tax  into  operation.  Should  it  not  prove  sat- 
isfactory to  public  opinion,  after  having  been  in 
effect  for  an  adequate  length  of  time  to  test  its 
workings,  it  can  easily  and  simply  be  abolished. 

I  feel  assured  that  if  and  when  the 
people  can  once  be  made  acquainted  through  ac- 
tual experience  with  the  simplicity,  productivity 
and  "painlessness"  of  the  sales  tax,  it  will  be 
recognized  by  public  opinion  for  what  I  believe  it 
to  be — an  ideal  means  of  raising  revenue — and 
will  become  a  permanent  feature  of  our  fiscal 
system. 

Conservative  estimates  indicate  that  a  one 
per  cent  tax,  even  if  confined  to  sales  of  com- 
modities only  and  exempting  initial  sales  of 
farm  crops  and  live  stocks  and  also  exempting 
annual  turnovers  up  to  $6,000,  would  produce 
annually  at  least  $1,250,000,000. 

According  to  careful  calculations,  the  addition 
of  a  tax  of  one  per  cent  upon  every  stage  of 
manufacture  from  the  original  producer  of  the 
raw  material  to  the  ultimate  consumer  of  the 
finished  article,  will  average  an  addition  to 
final  costs  of  not  more  than  three  per  cent. 
That  is  less,  I  feel  sure,  than  the  addition  to  final 
costs  which  the  public  now  pays  through  the 
existing  practice  of  shifting  taxes  by  "loading" 
prices  in  a  more  or  less  haphazard  way,  and 
through  the  indirect  effect  of  the  withdrawal  of 
capital  from  productive  enterprise,  owing  to 
excessive  surtaxes. 

I  38  1 


Sales  Tax  Would  Rather  Diminish 
than  Increase  Burden  on  the  Masses 

The  incidence  and  amount  of  the  sales  tax  can 
be  so  plainly  checked  and  traced  as  to  prevent 
its  being  used  for  unfairly  pyramiding  or  "load- 
ing" prices.  Personally,  I  am  convinced  that 
instead  of  adding  to  the  burden  on  the  masses  of 
the  people,  as  its  opponents  claim,  the  effect  of 
the  operation  of  the  sales  tax  would  tend  to 
diminish  that  burden. 

The  tax  problem  of  the  United  States  Govern- 
ment is  not  difficult,  the  remedy  for  its  existing 
defects  and  their  consequences  is  easy.  The 
adjustment  which  is  called  for,  can  and  should  be 
effected  without  impairing  the  fortunate  and 
desirable  circumstance  that  in  our  country,  in 
respect  of  taxation  by  and  for  the  Central 
Government,  those  of  small  or  moderate  means 
are  taxed  far  less,  both  directly  and  indirectly, 
than  they  are  in  any  other  of  the  leading 
countries. 

The  alternative  is  not  to  burden  unduly  either 
business  or  the  masses  of  the  people.  The  idea 
is  not,  and  ought  not  to  be,  to  relieve  the  former 
at  the  expense  of  the  latter. 

The  end  that  should  and  can  be  attained  by 
proceeding  wisely  and  in  recognition  of  the  facts 
which  practical  experience  has  demonstrated 
unmistakably,  is  to  benefit  both  business  and  the 
masses  of  the  people. 


1  34  ] 


There  can  be  no  Full  Prosperity 
Until  Taxation  is  Adjusted  Wisely 

I  am  convinced  that  unless  and  until  the  glaring 
errors  of  our  existing  taxation  policy  are  remedied, 
America  will  fall  short  of  attaining  that  degree  of 
prosperity  and  accomplishing  that  measure  of 
general  well-being,  which  are  open  to  a  nation  in 
whose  domain  abounding  natural  resources  are 
coupled  with  racial  qualities  that  in  the  past 
have  found  conspicuous  expression  in  zest  for 
work,  daring  enterprise  and  broad-gauged 
achievement. 

And  I  am  further  convinced  that  tax  revision 
contains  a  good  deal  less  political  dynamite  than 
many  of  those  in  public  life  appear  to  think.  I 
believe  the  people  do  not  care  by  what  method 
relief  is  obtained  from  an  unpropitious  situation 
provided  the  relief  is  effective  and  the  results  are 
beneficial  to  them. 


[  35 


IV 


THE  EUROPEAN  SITUATION 

The  blight  of  those  ill-omened  instruments, 
the  peace  treaties  of  1919,  lies  upon  all  Europe. 

Undertaking  blithely  to  create  a  new  world  by 
their  fiat,  the  framers  of  the  treaties  carved  up 
with  sweeping  and  iconoclastic  arbitrariness  the 
map  of  Europe,  Africa  and  Asia,  brushing  aside 
actualities,  unmindful  of  demonstrated  qualities 
or  disabilities  of  races  and  disregarding  economic 
realities  and  results. 

Endeavoring  to  reconcile  justice  and  wisdom 
with  expediency  and  all  too  often  with  considera- 
tions of  domestic  policy,  they  sowed  the  seeds  of 
dissension  and  ill-feeling  toward  each  other 
among  their  respective  nations,  and  of  confusion, 
discord  and  strife  throughout  Europe. 

In  the  name  of  a  hazy  and  illusory  doctrine, 
termed  self-determination,  dispensations  were 
made  which  instead  of  bringing  assuagement  of 
racial  animosities,  have  resulted  in  the  creation  of 
narrow,  rampant  nationalisms  and  of  multiplied 
customs-barriers  and  other  impediments  thrown 
in  the  path  of  trade-intercourse  and  normal 
relationship  between  the  peoples. 

Simultaneously  with  these  dispensations  and 
in  defiance  of  the  self-same  doctrine,  large  bodies 

[  36  ] 


of  people  were  torn  from  their  racial  affiliations 
and  thrust  under  unnatural  sovereignties. 

Failure  of  the 
Peace  Treaties 

So  little  were  the  peace  treaties  consonant  with 
the  realities  that  from  the  day  of  their  promulga- 
tion to  this  day  they  have  been  continuous  ob- 
jects of  heated  controversy,  of  readjustment,  of 
interpretations,  of  conferences,  of  haggling  and 
whittling  down,  and  of  ever-recurring  crises. 
None  of  them  has  proved  fulfillable. 

In  the  case  of  one  of  them,  the  treaty  with 
Austria,  the  selfsame  nations  which  imposed  the 
conditions  of  peace  have  found  themselves  com- 
pelled to  undertake  the  task  of  intervening  to 
counteract  the  effects  inevitably  produced  by 
these  very  conditions. 

In  the  case  of  another,  the  treaty  with  Turkey, 
its  provisions  have  been  nullified  by  the  sword, 
and,  according  to  often  published  and  uncon- 
tradicted reports,  the  means  to  sharpen  that 
sword  were  furnished  to  a  considerable  extent 
by  some  of  the  Allied  Powers. 

The  treaty  makers  thought  fit  to  inject  into 
the  matter-of-fact  business  of  making  peace — a 
business  which  demanded  promptitude  and  final- 
ity— the  complexities,  delays  and  uncertainties 
of  a  world-embracing  ethical  experiment  that 
called  for  calm  and  detached  and  separate  con- 
sideration and  treatment,  i.  e.,  the  League  of 
Nations. 


1  37  ] 

-  ;!- 


The  idea  and  aim  of  organized  co-operation 
among  the  nations  in  order  to  maintain  and 
strengthen  international  law  and  justice,  foster 
understanding,  fair  dealing  and  good  relations 
among  the  peoples,  and  aid  to  preserve  peace  has 
ever  met  with  the  ardent  approbation  of  right- 
thinking  people  everywhere. 

The  treaty  makers  have  mishandled  that  fine 
and  universally  acclaimed  conception  by  seeking 
to  utilize  it  for  unrelated  purposes. 


Fundamental  Defects  of 
the  League  of  Nations 

The  League  ought  to  have  been  entirely 
separate  and  distinct  from  the  war-settlement, 
instead  of  being  made  an  instrument  to  execute 
and  guarantee  the  terms  of  ill-conceived  peace 
treaties. 

It  ought  to  have  been  a  matter  of  growth,  of 
evolution,  of  elastic  adaptability,  instead  of  the 
rigid,  cumbersome,  complex,  all-embracing  thing 
which  emerged  from  the  fateful  secret  conclave  in 
Paris  in  the  summer  of  1919. 

Owing  to  its  congenital  defects  and  the  disin- 
genuousness  and  bargaining  which  marked  its 
very  creation,  the  League  has  proved  itself  im- 
potent to  deal  with  the  most  pressing  and  vital 
problems  for  which  the  world  craves  a  remedy, 
and  to  aid  effectively  in  bringing  about  that 
spirit  and  fact  of  peace  and  settlement  and 
fairness  and  reconciliation  among  nations,  for 
the  promotion  and  attainment  of  which,  in  the 

[  38  1 


view  of  the  sincere  and  singleminded  adherents 
of  the  League  idea,  it  was  destined. 

•^     ^>    <§> 

The  contention  frequently  put  forward  that 
responsibility  for  the  existing  unsettlement,  dis- 
peace  and  quarreling  in  Europe  is  largely  attrib- 
utable to  America's  absence  from  the  League  of 
Nations  seems  to  me  to  be  little  more  than  an 
attempt  to  unload  the  blame  for  the  conse- 
quences which  were  bound  to  spring,  and  did 
spring,  from  the  fatal  faultiness  of  the  peace 
treaties. 

How  could  America's  participation  in  the 
League  of  Nations  have  changed  the  fateful 
course  of  events,  in  view  of  the  fact  that  it  is  the 
dispensations  embodied  in  the  peace  treaties  and 
particularly  the  provisions  relating  to  repara- 
tions, which  were  mainly  causative  of  those 
events,  and  of  the  further  fact  that  the  League,  of 
course,  has  no  power  whatever  to  modify  those 
dispensations  and  provisions? 

The  "Fourteen  Points" 
were  Disregarded 

The  program  proclaimed  by  President  Wil- 
son, speaking  for  the  "Allied  and  Associated" 
powers,  as  the  basis  on  which  peace  should  rest, 
including  the  wise,  enlightened  and  far-sighted 
Fourteen  Points,  has  been  disregarded  or  cir- 
cumvented. 

Whether  or  not  the  American  and  Allied 
armies  ought  to  have  gone  on  to  Berlin,  whether 

[  39  ] 


peace  terms  ought  to  have  been  dictated  from 
that  capital,  whether  they  ought  to  have  been 
different  than  those  actually  stipulated,  the  fact 
is  that  Germany  laid  down  her  arms  upon  the  as- 
surance of  definite  conditions  of  peace  stated  by 
President  Wilson  and  formally  accepted  and  con- 
firmed— with  minor  reservations — by  our  Allies. 

The  peace  treaties  are  not  in  conformity  with 
those  terms. 

If  it  be  possible  to  speak  of  a  pledged  word 
being  more  sacred  and  compelling  in  one  case 
than  in  another,  it  may  be  said  that  no  obliga- 
tion is  more  solemn  and  binding  than  that 
undertaken  toward  a  beaten  and  disarmed  foe. 
It  has  been  so  considered  throughout  history, 
far  back  even  in  the  days  when  the  code  of  ethics 
was  primitive. 

The  treaty  makers  not  only  departed  from  the 
plain  meaning  of  the  conditions  granted  to  the 
enemy,  they  also  nullified,  in  effect,  the  promise 
given  to  their  own  peoples,  which  fired  so  many 
hearts  and  inspired  so  many  to  willing  sacrifice 
and  heroic  endurance,  the  promise  that  the 
dreadful  night  of  the  war  would  bring  the  dawn 
of  a  nobler  day,  both  within  each  nation  and 
among  all  nations.  Alas,  for  the  shattering  of 
that  high  hope! 

The  spirit  and  actions  of  the  victors  as 
exemplified  in  1919,  and  the  proceedings  since 
then  of  some  of  them  have  gone  far  to  handi- 
cap the  influence  and  the  efforts  of  those  in 
the  defeated  countries  who  are  sincerely  attached 
to  liberalism  and  democracy,  and  to  facilitate 

I  40  1 


the  propaganda  of  extremists,  both  on  the  right 
and  on  the  left. 

I  dislike  to  interject  any  reference  personal 
to  myself,  but,  lest  such  consideration  as  you 
may  be  inclined  to  think  my  arguments  to  be 
deserving  of,  may  be  affected  by  misunderstand- 
ing or  misinterpretation  of  my  motives,  permit 
me  to  say  that  the  attitude  which  I  took  un- 
hesitatingly on  the  side  of  the  Allied  nations 
from  the  day  the  first  shot  was  fired  in  1914, 
because  their  cause  was  that  of  right  and  liberty, 
ought  to  absolve  me  from  the  imputation  of  bias 
in  favor  of  Germany. 

The  Tragic  Plea 
of  Devastated  France 

I  know  and  feel  full  well  the  all  too  elo- 
quently tragic  and  moving  plea  which  con- 
templation of  the  devastated  regions  makes  to 
the  feelings  of  every  one,  how  much  more  to 
those  of  a  Frenchman. 

I  sympathize  deeply  with,  and  fully  under- 
stand and  endorse,  the  passionate  determination 
of  France  to  protect  her  children  now  living 
and  those  of  coming  generations,  as  far  as  hu- 
manly possible,  against  the  dread  eventuality 
of  having  to  face  once  more  the  appalling  ordeal 
of  war  and  invasion  from  across  the  Rhine.  I 
share  wholly  the  feeling  and  conviction  that  the 
safety  and  wellbeing  of  France  do  concern,  justly 
and  greatly,  the  people  of  the  United  States,  both 
sentimentally  and  actually. 

[  41  1 


I  am  far  from  forgetting  that,  from  the  moral 
and  legal  point  of  view,  Germany  must  go,  or 
must  be  made  to  go,  to  the  utmost  limit  of 
her  capacity  to  atone  for  the  hideous  wrong 
and  destruction  wrought  by  her.  I  am  far  from 
under-appraising  the  right  and  the  need  of 
the  Allied  nations,  especially  France,  to  take 
every  warranted  safeguard  for  their  future  peace 
and  security. 

I  endorse  unqualifiedly  the  title  of  the  Allied 
nations,  and  again  pre-eminently  France,  to 
exact  every  practicable  contribution  and  guaran- 
tee from  Germany  toward  overcoming  the  grave 
fiscal  and  economic  difficulties  and  problems 
which,  owing  to  the  war,  are  weighing  upon 
them. 

I  do  not  shut  my  eyes  to  the  instances,  within 
the  past  four  years,  of  conduct  and  tendencies  on 
the  part  of  Germany  calculated  to  arouse  the 
resentment  and  misgiving  of  the  Allied  nations, 
of  things  done  which  should  not  have  been  done 
and  other  things  not  done  which  should  have 
been  done,  nor  to  the  fact  that  a  considerable 
and  influential  portion  of  the  German  people 
continue  to  show  an  ominous  spirit  of  truculence 
and  of  obliquity  to  her  guilt. 

But  all  these  considerations,  however  weighty, 
do  not  make  right  the  defects,  moral  and  prac- 
tical, of  the  peace  treaties.  Nor  do  they  justify 
self-opinionated  refusal  to  recognize  or  admit 
realities,  and  stubborn  insistence  upon  untenable 
and  unfulfillable  conditions. 

(  42  ] 


The  most  urgent  and  most  immediately 
troublesome  of  the  problems  calling  for  action 
by  the  Allied  Governments,  is  that  of  the  repara- 
tions due  from  Germany. 

That  the  situation  in  Europe  cannot  be  nor- 
malized until  this  question  and  others  related 
thereto  have  been  definitely  and  finally  ad- 
justed, is  now  a  matter  of  general  recognition. 
That  Germany  is  utterly  unable — and  under  no 
conceivable  circumstances  will  be  able — to  pay 
the  fantastic  sum  assessed  against  her  by  the 
London  ultimatum  of  the  spring  of  1921,  is  like- 
wise understood  by  informed  persons  everywhere. 

(Incidentally,  it  should  be  borne  in  mind  that 
the  appraisal  of  that  sum  rests  upon  an  inde- 
fensible interpretation  of  the  armistice  terms. 
Under  these  terms,  Germany  was  held  to  make 
compensation  "for  all  damage  done  to  the 
civilian  population  of  the  Allies  and  to  their 
property  by  the  aggression  of  Germany  by  land, 
by  sea  and  from  the  air."  In  the  peace  treaty, 
against  the  unanimous  advice,  on  legal,  moral 
and  practical  grounds,  of  the  American  experts, 
but,  regrettably,  with  the  consent,  though  re- 
luctantly given,  of  President  Wilson,  the  natural 
meaning  of  these  terms  was  twisted  to  include 
German  liability  for  Allied  military  pensions 
and  "separation  allowances,"  and  thereby  the 
total  amount  assessable  against  Germany  for 
reparation  was  more  than  doubled.) 


[  43  ] 


The  Appraisal  of 
What  Germany  can  Pay 

In  appraising  Germany's  ability  to  pay  repara- 
tions, it  must  be  remembered  that  not  only  has 
the  peace  treaty  taken  from  her  a  vast  amount 
of  property  (estimated — though  doubtless  over- 
estimated— by  the  late  Dr.  Rathenau  at  about 
twenty  billion  dollars  in  value),  some  of  it  of 
irreplaceable  national  value  economically,  but 
that  she  is  called  upon  to  pay  the  cost  of  the 
Allied  armies  of  occupation,  the  expense  of 
numerous  Allied  commissions  and  other  items 
not  generally  known,  all  of  which  aggregate  a 
huge  sum,  apart  from  reparations.  And  the 
vital  fact  must  never  be  lost  sight  of  that  what 
German  industry  yields  at  home  is  paper  marks, 
but  what  she  has  to  pay  in  reparations  is  gold 
marks  or  their  equivalent. 

According  to  official  figures  submitted  to  the 
German  Parliament,  the  cost  to  Germany  of 
the  Allied  armies  of  occupation  from  the 
Armistice  to  March,  1922,  was  5,537,000,000 
gold  marks  (about  one  and  one-third  billion 
dollars)  and  14,000,000,000  paper  marks.  For 
the  past  twelve  months,  it  is  officially  stated,  the 
cost  to  Germany  of  the  Allied  armies  of  occu- 
pation has  been  over  $400,000,000. 

Germany  Must  Pay  to  the 
Full  Limit  of  Her  Capacity 

The  conscience  of  the  world  will  not  be  satis- 
fied until  Germany  will  have  made  that  degree  of 

[  44  1 


at  least  material  reparation  which,  by  her  utmost 
practicable  efforts,  she  is  able  to  produce.  But 
all  competent  observers  agree  that  the  amount 
now  fixed  not  only  is  far  beyond  her  capacity  to 
pay,  but  that  insistence  upon,  and  efforts  to 
enforce,  the  unrealizable,  results  merely  in 
steadily  diminishing  that  capacity. 

Suggested  Settlement 
of  Existing  Deadlock 

It  would  seem  manifest  that  the  situation  calls 
for  the  granting  of  a  moratorium  for  a  few  years. 
Within  that  period,  under  the  effective  super- 
vision of  the  Allied  powers  and,  to  the  extent 
needed,  with  their  co-operation,  she  can  and 
must  put  her  house  in  order,  prevent  the  evasion 
of  German  capital,  stop  her  paper  printing 
presses,  impose  and  rigorously  collect  severe 
taxation,  balance  her  budget  and  stabilize  her 
currency.  She  must  show  unquestionable  good 
faith  and  the  utmost  sincerity  of  effort,  and  so 
conduct  herself  in  action,  spirit  and  disposition 
as  to  invite  and  warrant  indulgence  on  the  part 
of  the  Allied  powers. 

After  the  expiration  of  that  moratorium,  she 
should  inflexibly  be  held  to  pay  such  reparations 
as  observation  and  experience  in  the  meantime 
will  have  shown  to  be  practicable,  and  as  long  as 
she  does  pay,  there  should  be  no  measures  or 
gestures  of  latent  coercion,  military  or  otherwise. 

In  pursuance  of  such  a  program,  a  German 
loan  could  be  floated  of  sufficient  size  to  enable 

I  45  ] 


the  stabilization  of  the  mark  and  the  making  of 
a  substantial  payment  on  account  of  reparation. 

It  has  been  suggested — and  it  may  perhaps  be 
wise — that  the  reparations  payments  to  be 
exacted  from  Germany  in  such  a  final  settlement 
should  not  be  an  arbitrarily  fixed  amount  which 
may  prove  too  high  or  too  low  for  her  capacity, 
but  a  definite  yearly  percentage  of  her  exports, 
for  an  adequate  length  of  time. 

Incidentally  in  the  very  interest  of  the  repara- 
tion claimants,  those  treaty  provisions  which 
place  undue  discriminations  against  her  exports 
and  prevent  her  from  controlling  her  imports, 
ought  to  be  reviewed. 

The  Menace  of 
Germany's  Collapse 

It  is  doubtless  true  that  the  present  critical 
situation  in  Germany  is  due  not  merely  to  exces- 
sive exactions,  and  to  harassments  and  errors  on 
the  part  of  the  Allies,  but  that  a  large  part  of  the 
responsibility  is  attributable  to  the  faults  of  her 
own  policy,  whether  due  to  reprehensible  design 
or  to  lack  of  strength  and  resolution  in  the 
Government. 

Nevertheless,  the  fact  is  that  by  the  methods 
heretofore  employed  the  Allied  nations  have 
not  been  able  to  obtain  any  but  a  small  part 
of  the  reparations  justly  due,  that  the  prospect 
of  obtaining  adequate  payment  is  getting  slim- 
mer the  longer  these  methods  are  pursued,  that 
things  in  Germany  are  going  from  bad  to  worse, 

[  46  ] 


that  she  is  drifting  into  economic  chaos,  that  she 
is  threatened  with  civil  war,  that  she  is  being 
driven  fatally  into  the  beckoning  arms  of  Russia. 

What  the  repercussion  upon  all  Europe  would 
be  of  total  despair  and  collapse  in  Germany, 
cannot  be  measured.  But  surely  it  has  become 
plainly  manifest  that  the  sheer  policy  of  the 
iron  hand  can  bring  neither  profit  nor  safety  to 
those  employing  it. 

Surely,  it  is  possible  to  be  inflexibly  firm  in 
insisting  upon  and  enforcing  just  dues  fixed 
within  the  limit  of  the  reality  of  things,  without 
making  confusion  ever  worse  confounded. 
Surely,  the  time  is  due  and  overdue  to  re- 
establish genuinely  peaceable  intercourse  be- 
tween all  the  leading  nations. 


[  47  1 


V 


THE  PROBLEM  OF  AMERICA'S 
ATTITUDE  TOWARD  EUROPE 

In  contemplation  of  the  European  situation, 
what,  then,  should  America  do? 

It  is  no  use  crying  over  spilt  milk,  but  there  is 
use  and  indeed  there  is  need,  for  the  American 
people  to  aid  in  preserving  from  further  spills 
what  milk  there  is  left,  and  in  replenishing  the 
world's  all  too  scanty  supply. 

Not  seeking  any  exclusive  advantage  for  our- 
selves, deriving  our  compensation  out  of  the 
results  flowing  from  the  enhanced  well-being  of 
all  nations,  we  are  peculiarly  qualified  to  illumine 
the  murky  gloom  of  post-bellum  and  post-treaty 
Europe  with  the  clear  rays  of  well-intentioned, 
judicious  counsel  and  to  contribute  effective 
collaboration. 

America  Cannot  Disregard 
Her  Responsibility 

Such  as  Europe  is  today,  America  has  been  a 
strong  factor  to  make  her,  through  her  decisive 
participation  in  the  war  and  through  President 
Wilson's  part  in  the  framing  of  the  peace 
treaties.  We  cannot  in  decency  or  in  wisdom 
disregard  that  responsibility  and  wash  our 
hands  of  Europe. 

I  48  ] 


America  is  in  the  fortunate  position  of  not 
having  any  axes  to  grind.  She  is  not  suspected 
of  ulterior  motives. 

The  European  nations,  both  our  comrades  in 
the  war  and  our  former  enemies,  have  confidence 
in  her  disinterestedness  and  her  intentions.  They 
have  reciprocally  involved  themselves  in  a  snarl 
which  they  find  it  an  almost  hopelessly  difficult 
task  to  unravel  by  themselves. 

In  the  tumultuous  clash  of  conflicting  inter- 
ests, aims  and  claims  among  the  nations, 
America's  voice  will  be  heard  and  her  counsel 
will  be  potent. 

In  the  face  of  a  Europe  seething  with  turmoil 
and  gripped  by  distress,  is  America  to  pursue  a 
policy  of  narrow  self -protection,  over-cautious 
reserve  and  cold,  diplomatic  correctness?  Is  she 
to  stand  aside  in  sterile  and  self-righteous 
aloofness? 

The  World's  Consuming  Power 
Essential  to  American  Prosperity 

In  part,  through  the  destruction  of  the  war 
and  no  less,  probably,  through  the  faults  of 
statesmen  and  the  disruptive  effects  and  eco- 
nomic vices  of  the  peace  treaties,  the  consuming 
power  of  Europe  is  greatly  impaired  and  that  of 
many  millions  of  her  people  crippled  almost  to 
the  point  of  extinction. 

^     <§>    <§> 

The  consuming  power  of  the  world  is  an  essen- 
tial element  in  our  prosperity,  for  our  own  pro- 

f  49  ] 


ductive  capacity  has  outrun  our  consuming 
capacity. 

The  purchasing  power  of  the  European  mar- 
kets may  not,  for  a  certain  length  of  time,  be 
wholly  indispensable  to  the  prosperity  of  our 
manufacturers  and  merchants — though  it  un- 
doubtedly is  to  some  of  them — but  it  is  abso- 
lutely indispensable  to  the  lasting  prosperity 
of  our  farmers  and  cotton  growers,  because  they 
have  no  other  market  for  their  surplus. 

I  venture  to  propound,  in  respect  of  the 
European  situation,  that  the  following  things 
might  well  and  safely  be  done  by  the  United 
States,  consistent  with  American  traditional 
policies,  with  freedom  from  political  entangle- 
ments in  Europe,  with  the  inviolate  preservation 
of  our  liberty  of  action  and  our  untrammeled 
sovereignty  and  with  altruism,  duty  and  self 
interest: 


1 


Official  Representation  on 
Reparation  Commission 

I  believe  that  America  should  long  have  been 
officially  represented  on  the  Reparation  Com- 
mission, on  which  she  has  had  from  its  beginning 
an  admirably  qualified  but  unofficial  and  non- 
voting delegate,  and  that  she  should  be  so  repre- 
sented henceforth  unless  the  outcome  of  the 
present  Inter-Allied  Conference  on  the  subject  of 
reparations  should   make   this  uncalled  for  or 

[  50  ] 


impracticable.  I  also  believe  that  America 
should  take  official  part  in  the  work  of  other 
Commissions  of  a  smiliar  character,  destined 
to  settle  controversial  questions  and  aid  the 
recuperation  of  Europe. 

These  Commissions,  in  their  conceptions  and 
functions,  are  essentially  akin  to  arbitration 
bodies.  I  can  see  no  categorical  reason  why 
America  should  not  take  a  full-fledged  part  in 
their  deliberations  and  conclusions.  I  see  strong 
reasons  why  she  should,  and  believe  that  her 
doing  so  would  mean  a  valuable  contribution 
toward  terminating  embarrassing  and  harmful 
deadlocks  and  toward  bringing  about  fair  and 
reasonable  solutions  of  gravely  troublous  prob- 
lems pressing  for  settlement  without  involving 
the  United  States  in  tangible  commitments  or 
undue  responsibilities. 

II 

Definite  Indication  as 

to  International  Collaboration 

A  vast  majority  of  the  American  people, 
at  the  last  presidential  election,  pronounced 
their  emphatic  unwillingness — in  my  opinion, 
rightly  so — to  subject  this  country  to  the 
obligations  and  "involvements,"  actual  and 
moral,  of  the  League  of  Nations  as  it  came  to 
us  from  Versailles. 

Notwithstanding  the  political  reversal  regis- 
tered at  the  election  of  last  month,  it  seems 
to  be  conceded  that  the  preponderating  verdict 


51 


of  the  electorate  continues  to  be  opposed  to 
America's  joining  the  existing  League. 

On  the  other  hand,  there  are  indications  of  a 
growing  undercurrent  of  popular  feeling  and 
recognition  that  the  United  States  cannot  afford 
to  be  indifferent  or  inactive  in  respect  of  the 
disarray  in  Europe. 

I  would  venture  the  suggestion  that  it  has 
now  become  fairly  incumbent  upon  the  United 
States  to  indicate  precisely  and  officially  what 
are  the  terms,  conditions  and  limitations  under 
which  she  would  be  prepared  to  take  part  in 
an  organized  and  permanently  established  inter- 
national effort,  destined  to  serve  justice  and 
welfare,  to  aid  the  maintenance  of  peace,  and 
to  promote  understanding,  fair  dealing  and 
goodwill  among  the  nations,  but  so  circumscribed 
in  its  functions  and  powers  as  to  be  in  accord 
with  the  spirit  of  the  traditional  limitations  in 
respect  of  America's  attitude  toward  the  affairs 
of  Europe,  and  to  involve  no  approach  to  any 
moral  or  actual  interference  with  American 
sovereignty  and  freedom  of  action.  That  sug- 
gestion is  not  in  conflict  with  precedent. 
America,  prior  to  the  war,  did  co-operate  offi- 
cially in  international  conferences  called  to  serve 
the  purposes  above  stated. 

I  do  not  speak  about  the  manifest  desirability 
and  propriety  of  the  United  States  joining  the 
International  Tribunal  of  Justice  at  The  Hague, 
because  it  is  understood  that  our  government  is 
already  in  negotiation  with  the  view  to  that 
consummation. 

[  52] 


Ill 

The  Allied  Debts  to  America 

I  submit  that  our  manner  of  dealing  with  the 
indebtedness  of  the  Allied  nations  to  the  Ameri- 
can Government  should  be  practical,  broad- 
gauged  and  liberal. 

4>    <^    <§> 

Before  proceeding  to  discuss  this  subject,  I 
beg  your  indulgence  for  a  few  words  which,  in 
my  capacity  as  banker,  I  feel  called  upon  to  say 
in  connection  with  it,  in  view  of  the  constantly 
reiterated  imputation  that  the  views  of  the 
banker,  and  especially  of  the  so-called  interna- 
tional banker,  concerning  this  question  are 
colored  by  considerations  of  selfish  interest. 

Well,  that  simply  is  not  so,  and  there  is  nothing 
in  the  nature  of  things  to  make  it  so.  Indeed, 
from  the  merely  material  and  personal  point  of 
view  the  banker  has  no  more  particular  reason 
to  be  concerned  about  a  settlement  of  the  matters 
affecting  the  situation  in  Europe  than  the  aver- 
age American  citizen,  and  much  less  reason  than 
the  farmer  and  others  whose  prosperity  is  sub- 
stantially affected  by  Europe's  capacity  to  make 
purchases  in  this  country. 

The  often  repeated  and  widely  believed  asser- 
tion that  American  bankers  hold  from  four  to 
six  billion  dollars  of  foreign  securities  is  wholly 
untrue.  To  begin  with,  the  total  amount  held 
in  America  of  securities  of  those  nations  which 
are  indebted  to  our  Government,  is  not  four  to 
six  billion  dollars,  but  less  than  one  billion  dollars. 

f  53  1 


And,  secondly,  these  securities  have  been  widely 
distributed,  and  the  great  bulk  of  them  is  held 
not  by  bankers,  but  by  many  thousands  of 
investors,    mostly   small   investors,    throughout 

the  country. 

<#>    <§>     <§> 

To  return,  after  this  diversion,  to  the  course  of 
my  argument,  what  are  the  facts  and  circum- 
stances relating  to  the  Allied  debts  to  America, 
aggregating,  in  round  figures,  without  including 
interest  accrued  but  unpaid,  $10,000,000,000? 

(A)  These  debts  are  justly  due  to  the  United 
States.  There  is  no  valid  ground  for  reproach, 
uttered,  insinuated  or  felt,  on  account  of  this 
government's  unwillingness  to  relinquish  or 
compromise  that  claim.  The  contention  that  our 
loans  to  the  Allied  nations  should  naturally  be 
considered  and  treated  as  a  contribution  to  the 
common  expense  of  the  war,  does  not  appear 
warranted. 

It  is  not  possible  on  the  present  occasion  to 
enter  exhaustively  into  this  question.  I  will 
confine  myself  to  enumerating  the  following 
points,  as  bearing  upon  the  contention  above 
referred  to: 

(1)  The  intrinsic  circumstances  of 
America's  joining  in  the  war  were  essentially 
different  from  the  conditions  and  considera- 
tions which  determined,  or  compelled,  the 
course  of  the  Allied  nations  when  they  en- 
tered the  conflict. 

[  54  1 


Neither  compulsion  of  self-preservation 
nor  any  fear  of  the  intentions  or  actions 
toward  America  of  a  Germany  emerging 
from  the  war  unwhipped,  nor  any  hope  of, 
or  desire  for,  gain  actuated  America's  de- 
cision to  throw  her  sword  into  the  scale  on 
the  side  of  the  Allies. 

(2)  America  made  no  secret  treaty  or 
bargain  as  almost  all  the  Allied  nations  did. 
She  was  wholly  uninfluenced  by  material 
or  political  considerations. 

Each  one  of  the  Allies  took  material  com- 
pensation from  the  vanquished,  to  the  full 
extent  that  there  were  assets  to  distribute, 
territorial,  physical  or  financial,  not  to  men- 
tion advantages  accruing  to  them  of  a  less 
tangible,  but  none  the  less  very  real,  nature. 
(If  some  of  the  things  which  were  believed 
to  be  assets  turned  out  later  on  to  be  rather 
liabilities,  that  does  not  alter  the  essence  of 
the  case.) 

America,  on  the  other  hand,  demanded 
nothing  and  received  nothing.  We  are  carry- 
ing the  immense  burden  of  our  war  expen- 
ditures without  any  compensating  tangible 
return  whatsoever,  except  a  few  ships  and 
the  German  assets  now  in  the  hands  of  the 
U.  S.  Alien  Property  Custodian,  all  of  which 
assets,  or  their  proceeds,  according  to  pend- 
ing proposals  of  the  Government,  it  is  in- 
tended to  refund  to  the  former  German 
owners,  outside  of  a  sufficient  amount  only 

[  55  1 


to  cover  proven  claims  of  American  private 
citizens  against  Germany. 


(3)  Of  the  $10,000,000,000  advanced  by 
us  to  the  Allies,  a  considerable  portion 
(about  $2,700,000,000,  as  far  as  I  can  ascer- 
tain) were  advanced  after  the  war  was  won — 
after  the  Armistice.  (It  must  be  recognized, 
though,  that  a  large  part  of  this  sum  arose 
out  of  commitments  made  during  the  war, 
and  that  such  part  was  needed,  and  no 
doubt  was  used  in  connection  with  the 
settlement  here  of  contracts  entered  into, 
prior  to  the  Armistice,  for  the  purposes  of 
the  war.) 

(4)  Of  the  remaining  $7,000,000,000,  or 
thereabouts,  a  certain  portion  was  spent  by 
the  recipients  for  purposes  not  directly 
connected  with  the  war. 

(5)  While  the  American  government 
loaned  money  to  the  Allied  governments 
unstintedly  to  pay  for  things  which  they 
bought  here  for  the  war,  it  paid  cash 
to  the  Allied  governments  for  everything 
which  it  bought  "over  there"  for  the  war, 
and  not  only  for  what  it  bought  but  for  a 
good  many  other  things,  such  as  transporta- 
tion, services  and  claims  of  various  kinds. 

The  aggregate  of  what  our  government 
thus  paid  in  cash  to  the  Allies,  prin- 
cipally    France     and,     secondarily,     Eng- 

i  56  1 


land,  is  estimated  to  amount  to  the  huge 
sum  of  $4,000,000,000. 

(6)  On  the  other  hand,  it  is  but  fair  to 
recall  that  prior  to  America's  entrance  into 
the  war  our  industries,  farmers  and  work- 
ingmen  benefitted  greatly  from  Allied  pur- 
chases in  this  country,  that  the  bulk  of 
what  America  loaned  to  the  Allies  was 
spent  in  making  purchases  in  this  country, 
that  from  the  profit  accruing  to  the  sellers 
on  these  purchases  the  American  Govern- 
ment derived  large  revenue  in  taxes,  and 
that,  owing  to  the  immense  depreciation 
of  foreign  currencies,  except  that  of  Eng- 
land, the  sum  which  the  debt  to  America 
now  represents  in  their  own  respective 
moneys,  is  vastly  greater  than  the  sum,  cal- 
culated in  foreign  currencies  or  values, 
which  America's  debtors  received  at  the 
time  the  loans  were  made.  Also,  as  against 
the  amount  due  to  America  from  the  Allied 
Governments,  certain  offsets  are  claimed, 
which  claims  are,  of  course,  entitled  to  full 
and  fair  consideration. 

(B)  Congress  has  constituted  a  Debt  Refund- 
ing Commission,  but  has  limited  its  authority  to 
arranging  for  the  repayment  of  the  Allied  in- 
debtedness to  us  within  twenty-five  years,  with 
4^4  per  cent  interest  per  annum. 

It  should  be  remembered  that  this  really 
means  imposing  a  charge  of  6%  per  cent  per 

[  57  ] 


annum,  because  if  the  debt  is  to  be  repaid  at  the 
expiration  of  twenty-five  years,  there  must  be 
provided  a  sinking  fund  of  2  per  cent  per 
annum  in  addition  to  the  interest. 

(C)  The  Allied  nations  on  the  European 
continent  maintain,  the  facts  of  the  situation 
being  what  they  are,  that  they  cannot  possibly 
meet  these  terms.  Indeed,  with  the  single  excep- 
tion of  England,  all  the  Governments  concerned 
indicate  that  they  are  not  now  in  a  position,  in 
view  of  existing  circumstances  of  sentiment  and 
actuality,  to  obtain  from  their  people  the  funds 
with  which  to  make  any  substantial  payments 
on  account  of  their  indebtedness  to  the  American 
Government.* 

Whatever  may  be  called  for  in  theory  and 
abstract  justice,  no  Government,  in  order  to 
pay  debts  abroad,  can  exact  from  its  own 
people  greater  deprivations,  renunciations  or 
sacrifices  than  public  opinion  will  sanction,  or 
place  upon  it  burdens  which  would  intolerably 
lower  the  standard  of  living  in  its  own  country 
or  seriously  impair  national  welfare  or  jeopardize 
what  are  looked  upon  as  essential  national 
interests  or  safeguards. 


*It  is  significant  to  note,  in  this  connection,  that  while 
all  the  Allied  nations  together,  victorious  and  augmented, 
find  themselves  unable  to  pay  us  an  aggregate  of  $10,000,- 
000,000  within  twenty-five  years,  yet  the  governments  of 
these  same  nations,  last  year,  committed  themselves  to  the 
stipulation  that  Germany  alone,  defeated  and  diminished, 
is  capable  and  obligated  to  pay  to  them  more  than  three 
times  that  sum,  i.  e.,  $32,000,000,000,  in  addition  to  several 
hundred  million  dollars  annually  for  the  cost  of  their 
armies  of  occupation. 

[  58  ] 


Some  of  the  nations  who  are  our  debtors,  have 
reached  the  very  limit  of  what  it  is  possible  to 
collect  by  taxation.  Even  in  the  case  of  those 
countries  in  which  governmental  policies  and 
action  would  seem  practicable  and  called  for, 
which  would  improve  their  domestic  budgets  and 
relieve  their  fiscal  position,  it  does  not  follow  that 
such  measures  would  enable  them  to  increase 
proportionately  their  capacity  to  liquidate  debts 
abroad,  inasmuch  as  such  liquidation  necessarily 
requires  gold  or  its  equivalent. 

(D)  An  all  round  reasonable  and  broad- 
minded  settlement  of  the  financial  status  of 
the  European  nations  that  were  engaged  in  the 
war,  is  a  prerequisite  to  setting  the  house  of  that 
Continent  in  order  and  making  itagainapeaceable 
habitation.  To  such  an  end,  I  believe,  America 
might  well  and  wisely  contribute  a  certain  por- 
tion of  her  Government's  claim  against  the 
Allied  nations.* 

I  am  convinced,  quite  apart  from  considera- 
tions of  sentiment,  that  it  would  be  to  the 
ultimate  advantage  of  the  United  States  to 
do  so.  I  feel  sure  that  such  action  would  turn 
out  a  good  investment. 

These  reciprocal  debts  and  claims  between 
nations,  in  their  undiminished  magnitude,  hang 
like  a  millstone  around  the  neck  of  the  Euro- 
pean peoples.   Whatever  may  be  the  arguments 

*  I  also  think  that  prompt  and  liberal  action  should  be 
taken  in  the  matter  of  settling  with  German  private  owners 
on  account  of  property  which, in  opposition  to  all  precedent, 
except  that  set  by  the  Allies  during  the  late  war,  was  con- 
fiscated by  our  government. 

1  59  ] 


of  strict  logic,  the  item  of  the  debts  due  from  the 
Allied  nations  to  the  American  Government  does, 
in  fact,  enter  as  an  element  into  their  attitude 
toward  the  determination  and  settlement  of  the 
reparations  problem  and  kindred  questions. 

The  repercussion  from  the  disordered  state 
of  Europe  is  bound  to  be  felt  in  this  country  to 
a  greater  or  lesser  degree — it  has  been  and  is  a 
strongly  aggravating  element  in  the  plight  of 
our  farming  population — and  if  continued  much 
longer  cannot  fail  to  have  a  seriously  detrimental 
effect  upon  America's  prosperity,  not  to  mention 
the  eventuality  of  graver  and  more  far-reaching 
consequences  which  are  conceivable  if  develop- 
ments in  Europe  are  permitted  to  drift  to  an 
acute  crisis. 

However,  it  must  be  recognized  that  the 
greater  part  of  public  opinion  in  this  country 
seems  definitely  opposed,  for  the  time  being,  to 
the  suggestion  of  cancelling  any  part  of  the  Allied 
indebtedness  to  America.  The  present  Adminis- 
tration appears  to  be  as  little  inclined  to  favor 
that  suggestion  as  the  preceding  one  was,  and 
the  same  holds  true  of  Congress. 

(E)  If,  then,  Government  and  public  opinion 
will  not  countenance  the  relinquishment  on 
America's  part  of  a  portion  of  the  Allied  debt — 
which  relinquishment,  be  it  understood,  is  sug- 
gested only  in  return  for,  and  simultaneously 
with,  measures  on  the  part  of  the  European  na- 
tions to  bring  about  that  change  of  mental  and 
moral  attitude  and  actual  conditions  which  is 
indispensable  if  the  world  is  to  be  again  on  an 

[  60  1 


even  keel — then,  in  view  of  all  the  circumstances 
above  set  forth  and  the  practical  impossibility 
to  enforce  payment  between  governments,  I 
would  suggest  the  following  tentative  outlines 
of  a  plan: 

A  Definite 
Plan  Suggested 

Of  the  $2,750,000,000,  or  thereabouts,  which 
our  Government  loaned  to  the  Allied  nations 
after  the  Armistice,  that  portion,  at  least,  as  was 
not  applied  to  the  settlement  of  war  contracts 
here  or  is  offset  by  valid  counter  claim,  is  in- 
trinsically distinguishable  from  the  balance  of 
the  Allied  debt  to  us.  It  should  be  promptly 
put  in  the  way  of  repayment  with  a  reasonable 
rate  of  interest.  For  instance,  America  might 
stipulate  interest  at  the  rate  of  334  Per  cent, 
and  an  annual  sinking  fund  of  1  per  cent,  the 
latter  to  begin  after,  say,  five  years. 

As  to  the  remainder  of  the  debt,  there  should 
be  no  attempt  to  apply  the  same  formula  to 
every  country.  The  Refunding  Commission 
should  go  thoroughly  into  the  economic  and 
financial  and  general  situation  of  all  countries 
concerned,  and  make  a  fair  and  final  settlement, 
subject  to  the  approval  of  Congress. 

That  does  not  imply  any  suggestion  that 
we  should  be  quixotic  about  this  business,  but 
merely  that  we  should  take  understanding  ac- 
count of  the  moral  and  economic  factors  involved 
in  each  case,  and  should  err,  if  at  all,  on  the  side 
of  liberality,  always,  however,  with  the  distinct 


61 


proviso  that  there  must  be,  on  the  part  of  those 
nations  which  are  our  debtors,  a  reciprocal 
attitude  of  moderation  and  of  enlightened  action 
to  terminate  effectively  the  ill-conditioned  era 
of  dispeace — lamentable  and  sinister  inheritance 
of  the  war  and  the  peace-treaties — which  has 
been  keeping  Europe  in  turmoil,  bitterness  and 
crisis  all  too  long. 

Terms  Imposed  by 
Congress  Too  Burdensome 

Even  upon  America's  financially  most  potent 
debtor,  and,  at  the  same  time,  best  customer, 
Great  Britain,  we  should  not  impose  the  exceed- 
ingly heavy  burden  of  paying  434  per  cent  inter- 
est from  the  start  and  redeeming  the  principal 
within  twenty-five  years.  I  would  suggest,  in 
the  case  of  that  country,  as  an  illustration,  that 
there  be  paid  an  annual  sinking  fund  of  three- 
quarters  of  one  per  cent.  Such  a  sinking  fund,  if 
invested  at  the  rate  of  4  per  cent,  would  extin- 
guish the  debt  in  forty-seven  years.  As  to  the 
interest  charge  to  be  imposed  in  addition  to  the 
sinking  fund,  I  would  start  at  a  very  moderate 
rate,  perhaps  as  low  as  2  per  cent,  and  gradually 
increase  that  rate,  say  every  six  or  eight  years, 
until  at  the  end  it  reaches  434  per  cent  or  4]  ^ 
per  cent. 

A  similar  formula  might  be  applied  toward 
France.  It  might  possibly  be  thought  appro- 
priate, in  her  case,  to  make  the  sinking  fund 
one-half  of  one  per  cent  only,  which,  if  invested 
at  the  rate  of  4  per  cent,  would  extinguish  the 

1  62  ] 


debt  in  fifty-six  years;  the  rate  of  interest  to  be 
charged  might  be  made  for  the  first  six  or  eight 
years  a  merely  nominal  one  (or,  possibly,  be 
waived  altogether  for  the  first  few  years),  after 
which  a  gradually  rising  scale  of  interest  would 
come  into  operation. 

The  question  of  the  feasibility,  acceptability 
and  extent  of  "payment  in  kind",  or  in  whatever 
other  equivalent  in  lieu  of  cash,  should  also  be 
within  the  purview  of  the  Commission's  investi- 
gations and  recommendations. 

All  these,  of  course,  are  the  merest  tentative 
suggestions.  The  Refunding  Commission  would 
be  able,  after  investigation  of  the  pertinent  facts, 
and  conference  with  the  representatives  of  the 
nations  concerned,  to  evolve  carefully  elaborated 
formulae  to  fit  each  particular  case. 

<§>     <§>     <§> 

America  has  Entered 
a  New  Phase 

I  do  not  flatter  myself  that  in  this  all  too  long 
dissertation  I  have  succeeded  in  making  con- 
verts to  my  way  of  looking  upon  the  problems 
before  us,  but  I  am  sure  you  are  in  accord  with 
me  in  recognizing  that  we  do  find  ourselves  face 
to  face  with  grave  and  immediate  problems. 

With  the  war  and  the  developments,  social, 
economic  and  political,  springing  from  the  war, 
directly  and  indirectly,  America  has  entered  a 
new  phase. 

Heretofore,  in  this  country,  the  path  was  a 
relatively    smooth    and    easy    one    to    travel. 

1  63  ] 


Since  the  Civil  War,  the  nation  has  not  found 
itself  compelled  to  tackle  any  really  hard  and 
complex  major  problem.  To  a  great  extent, 
it  was  a  case  of  attending,  with  due  diligence, 
energy  and  enterprise,  each  one  to  his  calling  or 
affairs,  and  the  Constitution,  the  inherited  things 
which  are  ours,  the  bountifulness  of  nature, 
largely  did  the  rest.  We  could  afford  to  be 
provincial  nationally,  and,  however  reprehensible 
the  neglect  of  the  duties  and  responsibilities  of 
citizenship,  we  could  and  did  manage  to  get 
along  without  serious  harm  while  too  many  of  us 
were  complacently  easygoing,  if  not  more  or  less 
indifferent,  in  our  attitude  toward  public  affairs. 
Those  easy  days  are  gone.  The  fact  that  they 
are  gone  should,  I  believe,  be  welcomed  rather 
than  lamented,  because  the  discipline  of  harder 
tasks  is  good  for  a  democracy  and  good  for 
the  fibre  of  the  race. 

The  Challenge  to  Our 

Capacity  to  Meet  the  New  Issues 

Now  we  are  confronted  with  new  situations, 
new  movements,  new  tendencies,  new  problems. 
We  are  living  in  a  portentous  time,  big  with  the 
destiny  of  the  world,  for  good  or  ill,  for  many 
years  to  come.  It  challenges  the  capacity  of  the 
American  people  to  play  worthily  the  part  which 
the  turn  of  events  has  made  theirs. 

We  must  give  more  serious  thought  than 
heretofore  to  matters  of  general  import  and 
national  concern.  We  must  increasingly  get 
together,  we  men  and  women  of  different  occupa- 

[  64  1 


tions  and  viewpoints  and  from  different  sections, 
and  find  out  what  is  wise  and  right  and  making 
for  the  progress  of  the  country  and  the  welfare  of 
all.  We  must  take  the  pains  and  the  time  to 
formulate  reasoned  convictions,  and  have  the 
courage  to  stand  up  for  them. 

We  must  not  shirk  the  burden  of  leadership 
for  America.  Our  collective  responsibility,  as 
well  as  the  individual  responsibility  of  every 
American,  is  heavy  in  the  face  of  the  times. 

The  Words  of  Lincoln 

Nearly  sixty  years  ago,  President  Lincoln 
addressed  these  words  to  Congress: 

"You  cannot,  if  you  would,  be  blind  to 
the  signs  of  the  times.  I  beg  of  you  a  calm  and 
enlarged  consideration  of  them,  ranging, 
if  it  may  be,  far  above  personal  and  partisan 
politics.  ...  So  much  good  has  not  been 
done,  by  one  effort,  in  all  past  time  as,  in  the 
Providence  of  God,  it  is  now  your  high 
privilege  to  do.  May  the  vast  future  not  have 
to  lament  that  you  have  neglected  it." 

That  noble  invocation  applies  today.  We  dare 
not  hope  that  a  leader  will  arise  comparable  to 
the  immortal  American  who  uttered  it,  but,  in 
going  to  meet  the  problems  before  us,  we  may 
and  should  seek  guidance  and  inspiration  from 
his  wisdom,  vision  and  steadfastness,  from  his 
tolerance,  kindliness  and  forbearance. 


i  65  1 


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